Pricing power
While canvassing secondaries participants for Private Equity International’s recent predictions series, one theme in particular caught Side Letter’s eye. Some within the industry, it seems, expect the burgeoning love affair between evergreen products and secondaries to impact market pricing trends this year and beyond.
“The evergreen wave aimed at reaching out to the retail market… could affect the prices of secondaries, as those funds can underwrite transactions with a lower return rate, which is a bit destabilising for the market,” said Jessica Sellam, head of private markets group at Rothschild & Co. “You have new players coming into the market with cheap capital and changing the dynamics.”
Secondaries-flavoured evergreen products have proliferated over the past year. As Andres Small, managing director at Partners Group, noted, secondaries are often an “essential component” of these products because they can shorten investment durations and potentially offer a valuation uplift if acquired at a discount. These synergies, according to Jan Philipp Schmitz, executive vice-president at Ardian, have rendered secondaries one of the “most sought-after sectors” for private wealth allocations.
Sellam’s expectations were echoed by Kutty Dutta, a London-based managing principal at HSBC Alternatives, who reckons the continued rise of evergreen capital will continue to push up pricing and demand for LP-led secondaries.
A report from Evercore last year estimated that buyers in Evercore LP transactions who used or who would have used ’40 Act funds – a type of evergreen pooled investment vehicle that allows managers to raise capital from non-institutional US citizens or taxpayers – won 80 percent of the deals they bid on, with prices about 6 percentage points higher than the top competing non-’40 Act buyers, per our colleagues at Secondaries Investor (registration required).
There are, however, obvious benefits attached to this trend, too. These vehicles, said Nadira Huda, managing director at Lazard, will likely bring “an unprecedented level of transparency” into secondaries. “With the increased reporting these vehicles require, and the fact that this information is publicly available, there will be more insight into how deals have been priced and how they are performing over time.”
Speaking of private wealth…
Blue Owl Capital is among those eyeing Japan’s lucrative private wealth opportunity. The GP stakes, real estate and credit giant has tapped Yoichi Nakamura as a managing director and head of Japan private wealth in Tokyo, per a statement this morning. Nakamura was previously Japan chief executive of credit, real estate and green unlisted assets investor Algebris Investments.
Blue Owl joins a number of global firms seeking to raise capital from wealthy Japanese individuals. For one, Japan is among Blackstone’s top priorities for private wealth. Joan Solotar, global head of private wealth solutions, told PEI in 2023 that the market could become its second-largest source of wealth capital outside of the US. KKR is similarly excited about the market, which it has earmarked, along with Europe, as its next priority for private wealth expansion, PEI noted in August.
Essentials
Sticking with APAC GP stakes…
Hunter Point Capital is expanding its APAC leadership team shortly after establishing an office in Hong Kong. The New York-headquartered GP stakes specialist has appointed Peter Rosenbloom, former head of APAC institutional capital raising at Investcorp, to lead its regional capital formation team, per a statement.
The firm aims to improve its presence and form deep relationships with LPs in the region through the newly created role for Rosenbloom. “Asia’s growing prominence for both GPs and LPs underscores the importance of having dedicated relationship managers on the ground,” chief executive and co-founder Avi Kalichstein said in the statement.
Hunter Point registered a Hong Kong office in June 2023, Private Equity International previously reported. The firm’s expansion effort in the region was initially spearheaded by Rex Chung, managing director and head of capital formation in APAC. Chung joined credit firm Brinley Partners in May last year, per a statement at the time.
The adoption of GP stakes in the APAC region has been slower than in Western markets, partly due to greater uncertainty in underwriting deals, according to Chris Lerner, who leads Asia activities at New York-headquartered GP stakes firm Bonaccord Capital Partners.
“When you’re looking at predictability of outcomes, which is a very important component to your ability to price these deals, Asia presents some challenges in underwriting – and also, in recent times, an element of volatility and questions around liquidity,” Lerner told PEI last January. He added that as alternatives mature in Asia, control opportunities should follow.
Besides Hunter Point and Bonaccord, another early GP stakes investor in the region is Pacific Current Group, an Australian-listed GP stakes buyer headquartered in Tacoma, Washington, and a global pioneer of the burgeoning strategy. Blue Owl expanded into APAC in 2021 via an office launch in Singapore and the acquisition of Hong Kong-based placement firm Ascentium, PEI reported at the time.
